Expect lower CAD in coming months: India Inc

SummaryGlobal economic situation on mend, our exports should continue to march ahead in coming months.

Current account deficit of 4.9 per cent in the first quarter was on expected lines and it is expected to improve in the coming months on the back of robust exports growth and dip in oil and gold imports, India Inc said today.

"What is important to note is the likely trend going ahead. In the months of July and August, exports have registered double digit growth and there has been a sizeable contraction in the import demand for gold," said Sidharth Birla, Senior Vice President, Ficci.

With global economic situation on the mend, our exports should continue to march ahead in the coming months. Further, with the oil ministry coming out with a comprehensive oil conservation plan, we could see a dip in oil imports in the subsequent quarters, he added.

High imports of gold and oil pushed CAD to 4.9 per cent of GDP to USD 21.8 billion in the April-June quarter of the current fiscal, the RBI said today.

During the quarter, while exports declined by 1.5 per cent, imports recorded an increase of 4.7 per cent. The trade deficit widened further to USD 50.5 billion in Q1 of 2013-14, from USD 43.8 billion a year ago, it said.

"The preliminary data on balance of payments is mostly on the expected lines but gives rise to some new concerns. The possible way out from this situation is to identify short term policy measures that can help reverse this trend," Assocham Secretary General D S Rawat said.

The government needs to consult the industry for identifying these immediate policy measures. In the long term, the country needs to review the outcomes of India's existing bilateral agreements while improving its manufacturing sector, he added.

Gold imports increased by USD7.3 billion in the first quarter of current fiscal. The imports stood at about 335 tonnes in the April-June quarter.

"The focus on curbing gold imports could be sharpened by promoting schemes that encourage citizens to bring idle gold into the market and monetise the same. Such measures would have a salutary impact on CAD," Birla said.

CAD, the difference between inflow and outflow of foreign exchange, was 4.4 per cent or USD 16.9 billion in the same quarter of last fiscal, 2012-13.

The government plans to bring down CAD to 3.7 per cent or USD 70 billion in the 2013-14 fiscal, from 4.8 per cent or USD 88.2 billion in 2012-13.

"However, going forward, with the positive turn in exports evidenced during the past two months along with early signs of revival of the US economy and strengthening of the economies of both Japan and China would support exports and bring down CAD to a range of 2.6 per cent as indicated by the Ministry of Finance," said Chandrajit Banerjee, Director General, CII.

A favourable policy environment such as lowering the cost of credit for exporters and providing priority sector status for export finance to improve their cost competitiveness in the international markets would help to further improve exports, he added.